The Five Dumbest Things on Wall Street This Week: Jan. 25
5. Caterpillar's Imprudence
The Chinese were the first people to spin silk from a caterpillar. In the city of Suzhou, for example, artisans have been producing silk the same way for over 4,000 years.
Well, judging by the ability of a wormy little Chinese machinery company to spin Dow-component Caterpillar(CAT) in circles, they are clearly upgrading the ancient trade to suit a modern world.
Shares of Caterpillar fell a week ago, after it revealed itself to be the victim of an accounting fraud at the Siwei subsidiary of ERA Mining Machinery, a Chinese company it acquired last summer for $653 million. The tractor maker announced it would take a noncash charge of $580 million, or 87 cents a share, in its fourth quarter as result of its hoodwinking.
"It came as a complete surprise to us," a former board member anonymously told Reuters. "It was presented to us as a pretty straightforward transaction. It's a shame. It should have been investigated further."
Really? You think so? We thought a supposedly smart outfit like Caterpillar would have dug a little deeper into a company that got itself listed on the Hong Kong exchange via reverse merger -- the shadiest invention since the beach umbrella -- but apparently we were wrong. Ironically, the world's largest maker of excavation equipment didn't dig at all in this case!
And if we think these guys were idiots, heck, we can only imagine what Carson Block must think of them. If anybody knows how dirty some of these Chinese scams can be, it's definitely the man behind research firm Muddy Waters.
In a statement, Caterpillar said an investigation into the deal "determined several Siwei senior managers engaged in deliberate misconduct beginning several years prior to Caterpillar's acquisition of Siwei."
Oh, brother. Forget silk, folks. These morons had the wool pulled over their eyes for the entire world to see.
4. Shooting Star Scientific
Make way, Manti Te'o. You have company -- and it's very much real.
Like the Notre Dame linebacker who lied about his fictional girlfriend, Star Scientific (STSI) misled investors about the involvement of Johns Hopkins University in the clinical testing of the company's retail nutritional supplement anatabine. TheStreet's own biotech ax Adam Feuerstein snared the company this Wednesday for fabricating a link between the well-respected school and anatabine, which accounted for a disappointing $1.7 million of Star's sales last quarter.
Star reported initial interim results from a clinical study of anatabine as a potential treatment for thyroid disease on Jan. 7. The company claims the study succeeded, but Feuerstein points out that it failed to disclose any real data. Star's press release included a promotional quote about anatabine from Dr. Paul Ladenson, described as a "senior endocrinological consultant" for the study.